RBI Draft on Mule Accounts: Will Your Bank Freeze Money? -

Quick answer: Under draft rules the RBI released on 11 September 2026, banks could put a temporary debit hold on money of Rs 1,000 or more that their systems link to mule accounts or cyber fraud, usually just the disputed amount rather than your whole account. You’d be told why, get 20 days to explain, and the bank would have to decide within set deadlines. The rules aren’t final yet and are proposed to start on 1 April 2027.

Account freezes have become a common complaint in India. People who received a payment that turned out to come from a fraud victim, often without knowing it, have found entire bank accounts blocked for months with little explanation. The RBI’s draft is an attempt to make that process faster, narrower and more predictable.

Here’s what the draft says, what a “money mule” is, and how to protect yourself. Everything below is as of 5 October 2026; the final rules may differ.

What the RBI proposed on 11 September 2026

The proposal is in the draft Reserve Bank of India (Know Your Customer) Amendment Directions, 2026. According to the RBI’s press release, it follows a Supreme Court direction of 4 August 2026 asking the RBI to set out a standard procedure for temporary debit holds on accounts involved in money-mule activity and cyber-enabled fraud. Public comments were open until 2 October 2026.

The draft would apply to commercial banks, small finance banks, payments banks, regional rural banks, local area banks and urban cooperative banks. Once final, the RBI says it will issue the directions separately for each type of bank.

How a temporary debit hold would work

Based on reporting by Business Standard and All India Radio News, the draft process looks like this:

Detection. The bank’s AI-based monitoring flags a transfer of Rs 1,000 or more that looks linked to a mule account or cyber fraud, for example because it’s sudden, doesn’t fit your usual pattern, or connects to known fraud networks.
Hold on the disputed amount. The bank holds the amount in question, rather than freezing the whole account.
Notice to you. The bank must tell you about the hold, the reason, and how to get it removed, by digital or physical communication.
Your explanation. You get 20 calendar days to show the transaction was genuine, with supporting documents.
The bank’s decision. The bank has 10 calendar days after your reply to decide. If you’re cleared, the hold is lifted.
Referral to police. If you don’t respond, or the explanation doesn’t settle the concern, the bank refers the case to the police through the national cybercrime reporting system, and the police then have 30 days to issue a formal legal order.

Business Standard reports that the hold would normally last no more than 60 days in total, though law enforcement agencies could ask for it to be extended. Banks would also have to appoint nodal officers to handle complaints and resolve them within 30 days.

One line from the coverage is worth holding on to: a temporary debit hold doesn’t by itself mean you’ve been accused of fraud. It’s a pause that gives you a chance to show the money is legitimate.

What is a money mule, and how do people become one?

A money mule is a bank account used to receive and move stolen money so it’s harder to trace. Some mule account holders know exactly what they’re doing. Many don’t.

The RBI’s BE(A)WARE booklet lists money mule schemes and fake job offers among common frauds. Typical ways people get pulled in include:

“Part-time job” or “work from home” offers that pay you to receive money and forward it.
Someone offering cash to “rent” or “borrow” your bank account, UPI ID or SIM card.
Selling your old bank account, debit card or chequebook to a stranger.
Receiving a payment for something you sold online, where the buyer used money stolen from someone else.

The scale is large. The government told Parliament on 12 August 2026 that 3.21 million first-layer mule accounts had been identified through its fraud reporting system up to 30 June 2026, as Outlook Money reported.

How to avoid having your account frozen

Never let anyone use your account, UPI ID or SIM. No matter how small the fee, or how trusted the friend of a friend. You’re responsible for what passes through your account.
Be wary of jobs that involve moving money. Genuine employers don’t pay you to receive and forward funds.
Keep records of genuine income. Invoices, chats with buyers, order IDs and delivery receipts make it much easier to explain a flagged payment within 20 days.
Use proper payment channels for business. Small sellers can reduce risk by using marketplace or payment-gateway checkouts that record buyer details.
Close accounts you no longer use rather than leaving them dormant, and never hand over old debit cards or chequebooks.

What to do if your account or a payment is put on hold

Read the bank’s notice carefully and note the deadline. Under the draft, you’d have 20 calendar days.
Contact your bank through official channels only. Use the number on your card or passbook, or visit the branch. Scammers sometimes pose as “account unfreezing” agents and ask for fees.
Send documents showing where the money came from: invoices, delivery proof, chat records, or a written explanation.
Escalate if needed. If the bank doesn’t respond in time, complain to the bank’s grievance officer, and then to the RBI’s complaint management system.

If someone has stolen money from you, which is the other side of mule fraud, see what to do if you’ve lost money to online fraud. Fast reporting is what lets police and banks freeze the money in mule accounts before it’s withdrawn.

Today, until the final rules arrive, account freezes are handled under existing law-enforcement and bank processes, so timelines can vary. For more on fraud and privacy, see our Cybersecurity and Privacy section.

Frequently asked questions

Are these rules in force now?

No. As of 5 October 2026, these are draft directions. The consultation closed on 2 October 2026, and the proposed start date is 1 April 2027, though banks may adopt the process earlier.

Will my whole account be frozen?

Under the draft, the idea is to hold only the disputed amount, not the entire account. Separate orders from police or courts could still lead to wider freezes.

I received money from a stranger by mistake. What should I do?

Don’t spend or forward it. Contact your bank and explain what happened, and keep any messages from the sender. Sending money back on a stranger’s instructions can be a trap.

Can I be punished for being a money mule if I didn’t know?

That depends on the facts and on the police investigation, so we can’t give a blanket answer. Responding quickly with documents is your best protection, and you should consult a lawyer if a police case is opened.

RBI Draft on Mule Accounts: Will Your Bank Freeze Money?